What is HRO? What does PEO stand for in HR? These questions between PEO vs HRO come up all the time if you are a business owner. It is important to know what human resources does for you and your employees. Having the knowledge about what is an HRO and what is a PEO in HR helps you run the human side of your company more efficiently.
What Is PEO?
PEO stands for “Professional Employer Organization.” This is a human resource entity that is full service outsourcing for HR. A PEO qualifies for “co-employment” status with your company. When it comes to human resources a PEO handles a variety of administrative tasks for a company. This can include benefits, payroll, and other HR duties. There are strategic services included with some PEOs.
What does PEO stand for in HR? Basically it is another organization that handles all the human resource essentials and is contracted to various companies. All your business risk becomes shared by your PEO using the same employer identification number for tax purposes. It also has the same insurance plans for workers’ compensation and healthcare. No two are identical, which is why researching the right PEO for your company is important.
What Is HRO?
An HRO is a “human resource outsourcing” company. It provides a bevy of HR services that your company can hand select. During times of economic distress an HRO can manage administrative tasks for small businesses. Oftentimes a benefit of having an HRO is that there is a lower cost than having full-time employees and benefits overseeing an human resources department.
PEO vs. HRO – What’s The difference?
While it might seem like PEO and HRO are the same thing, the answer is that there are subtle differences between the two. The cost of PEO is different from that of an HRO. The ways in which they are taxed and connected to your small business are not the same. Here are the main differences to keep in mind between a PEO vs HRO.
PEO Acts As A Co-Employer
Your small business can hire a PEO. That PEO, however, will hire its own people to manage and is officially the employer of those employees. State and federal employment laws require this for PEOs in order to be compliant with the rules regarding payroll services. The title of “co-employer” does not apply to HROs.
PEOs Pays Taxes, Creates W-2s, And Manages Tax Liabilities
A big difference between PEO vs HRO is that a PEO has the capability of providing benefits. Some examples of this are workers’ compensation insurance and unemployment insurance. A PEO will manage any claims filed against them. Your small business shares employment responsibilities with your PEO while you maintain oversight of employee functions and company-based decisions.
PEO vs HRO HR Services
Another key difference between PEO vs HRO is the types of services covered. A PEO will handle employee enrollment, legal notifications, COBRA administration, as well as negotiate with providers.
What is HRO responsible for in your company depends on you. An HRO will never be a co-employer of a company’s employees. That makes their services flexible and tailor made to address specific roles within a professional organization. They can cover payroll, benefits management, and recruitment duties. Many HROs offer on-call support and provide assistance to small businesses with insurance services, onboarding, training, and mentoring.
PEO vs HRO Costs
The cost of PEO tends to be higher at first. Many charge a fee of $150 to $200 per employee per month. Fees to set up a PEO can cost thousands of dollars. Overtime, they tend to be less expensive, with the price paying for itself.
An HRO bill initially looks fairly affordable. HRO insurance premiums are more costly than PEOs. As time goes on, your small business might realize it is paying more in HRO services than originally anticipated.
PEO vs HRO Area of Benefits
Large companies that already have human resources departments tend to go with HROs. This aids with outsourcing duties like processing payroll or strategizing a big organizational transformation. Businesses that are aiming to focus on functionality typically cannot or will not give responsibilities over to a PEO.
PEOs need access to employee information in order to do their jobs. This allows them to take over and automate processes that are vital to HR. The split between PEO vs HRO is that the latter does not take power or control over systems away from companies
Advantages And Disadvantages
Like most decisions in business there are good things and bad things associated with a PEO. Small businesses usually find the cost, benefits, expertise, and automation to be on the list. If they fall in the pro or con side depends on your company’s needs.
Costing
The cost of PEO seems solid at first glance. The price tag tends to be lower when compared to HROs. Double check the set up fees and how long you plan to pay for a PEO since those are the costs that add up in the long run.
Benefits For The Company
What does PEO stand for in HR? To many business owners it means peace of mind. Having a crew of HR experts working for you allows your company to grow with protection. Compliance, employee benefits, and payroll are taken care of while you focus on the future of your organization.
Expertise
You might not feel the need to have an HR resource manager or payroll administrator if you are a small business with a few employees. PEOs allow for experts to work with you. Their HR experts cover bases that seem small yet turn out to be very crucial in running a company.
Automation
Software and technology for HR can be expensive. Small businesses are usually on a budget. Online applicant tracking, new employee onboarding, benefits, payroll, and attendance systems can all be automated with the right PEO on your team.
Which One Should You Choose For PEO vs HRO?
Depending on the size and needs of your company a PEO or HRO might be the answer to your HR needs. If you have a small staff, limited budget, and too many tasks to take care of, look into a PEO to handle human resource duties. If you are a larger organization with an established HR department that could use some extra help, consider bringing on an HRO. Either way, research and evaluate all options before making a final decision between PEO vs HRO.
FAQs
What is the difference between a PEO and a payroll company?
PEOs have a co-employment relationship with a company and share certain responsibilities with the organization. A payroll company is a separate entity from the company that hires it.
